What Affects the Cost of your Life Insurance?

Two people of the exact same age will not pay the same amount in life insurance premiums because, aside from your age, a lot goes into the computation of a person’s insurability. The cost of life insurance is a measure of the risk that an insurance company is taking when they insure you. Underwriters assign a numeric value to different factors that helps them to calculate the probability of you dying. The higher the probability of you dying soon means higher premiums compared to someone that they have computed to possibly live years beyond you.

But you might say that you never can tell when and how a person would pass away. A completely healthy person can die earlier than a chronic smoker because of a car accident. While this is true, for most people factors such as your age, health, and occupation more often than not become the reason of one’s death.

Here are some of the things that insurance companies consider in calculating the total cost of your life insurance. Understanding each can give you an opportunity to make matters work in your favor so that you can get cheaper life insurance premiums.

Amount and period of coverage

A higher coverage or face amount means more expensive premiums.  When taking out a term life insurance policy, you will find that the longer your coverage is, the more you need to pay for.

Age and Gender

Insurance companies encourage people to take out life insurance policies while they are still young because you will pay less compared to when you are already in your senior years. Of course when everything else is kept equal, younger people have less chances of dying compared to an older one, which means it is more likely the insurance company will not have to pay anything out on a term life policy.

Unfortunately, most people do not think about taking out life insurance until they are in their 40s or 50s. People in their 20s and 30s actually have more need for life insurance because it is at this period that a family is typically carrying more debt to pay and can ill afford for a breadwinner in the family to pass away.

Nevertheless, there are needs sometimes for people well into their older years to carry life insurance. Many people think that they can not get life insurance into their 70′s, but you can find senior life insurance options into your 70′s and beyond, just be prepared to pay more.

It is a proven fact that women have a longer life expectancy compared to men, hence, women will be charged less life insurance premiums compared to men.

Health and Weight

Being overweight can cause many serious health conditions that can shorten your lifespan. It can also be a symptom of a more serious underlying medical condition. Insurers place a higher premium on an applicant that is overweight compared to that who is close to not.

Your health condition as well as your medical history is probably one of things that insurers will first look at when pricing a life insurance policy. A person with a pre-existing medical condition or one who is not physically fit will be given higher premiums compared to one who just gets the sniffles every now and then.


People who drink, smoke, or take illegal substances are more at risk to develop medical conditions because of these habits and insurers take a higher risk when insuring their lives because of the increased likelihood of them dying. People who exercise and do not smoke or drink can expect to get lower premiums as their healthy lifestyle promotes good health.


There are some occupations that insurers consider more risky over others. A race car driver or a pilot presents more risk to his life because of his occupation compared to one who sits behind a desk all day.  The more dangerous your occupation is, the higher the risk is, and this means more expensive premiums.

Burial Insurance

As they often say, there are only two guarantees in this life; death and taxes. Everybody will die eventually. However there is no need of you leaving a large burden of your funeral expenses and arrangements to your family members, relatives and friends. Burial insurance or funeral expense insurance is the easiest and best way to ensure that you have a good plan in place that will pay for the funeral wishes. Burial insurance is similar to the life insurance; however burial insurance does not carry cash benefit. Basically burial insurance is a basic form of life insurance that pays for the funeral merchandise costs and funeral services. The policy will cover people until the age of 100 years. Burial insurance is therefore a cash policy that builds the cash value for a certain time. Examples of costs covered by burial insurance are:

•Funeral service.
•Cemetery plot.
•Funeral procession.
•Legal fees.
•Miscellaneous costs.

The main features of burial insurance:

•The premiums of burial insurance do not change hence assuring a permanent coverage.
•The level premiums make sure that your coverage cost never increase until you decide to make changes to your policy.
•Level advantage helps you in capping your premiums in order to ensure that you never pay extra than your cover amount.
•The insurance line’s permanent protection promise means that for every five years of the coverage there will be always more benefits available that will assist in the expenses of the funeral even if one stops paying the premiums.
•No underwriting medical exams required in burial insurance.

Benefits of burial insurance:

Financial security

Burial insurance do not involve the protection against the risk that is an assumed; rather the purchase of burial insurance in to pay in advance the services that will be rendered in future time. This is the best way somebody can wrap up his or her finances at the end of life. This will help you in making sure that your loved ones and all your dependents will be financially stable to an extent of being relieved from funeral costs.

Very affordable monthly payments.

Take a look at some life insurance quotes online and compare burial insurance to other traditional life insurance options. It is far less expensive.
•The coverage is for ages of o to 100 years.
•Monthly payments and premium rates will stay the same always.
•No decrease in the coverage, hence your benefits will not be reduced.

For the small expense that this final expense insurance costs, you can save your loved ones a huge expense in their time of grief.

Can I get life insurance without passing a screening?

The quick answer to this question is yes. What is more important than your medical condition to a life insurance company is how well you are taking care of yourself. A life insurance company can get a better estimate of your life expectancy when you are following your doctor’s advice. This includes diet and exercise as well as any medication your doctor has prescribed for your health condition. A life insurance company does not want to sell a policy to anyone that is ignoring their health. This type of person will cost a company money.

While it is true that the rates are going to be higher for life insurance without a medical exam, the rates are not going to be as high as you might think. It is often the only solution for someone with a pre-existing health condition. Some of the conditions that you can have and still get life insurance include diabetes, high blood pressure, high cholesterol levels and heart disease. What is important is that you are working daily on keeping your medical health condition under control and keeping yourself in the best health possible.Although it is true that some medical conditions are so serious that no company will sell you insurance, there are serious conditions that are operable. In these situations, it may still be possible to get a life insurance policy. If you have had a recent surgery for a heart condition, you may still be able to obtain a life insurance policy. What a life insurance company will demand is a certain amount of time since your surgery has passed before they will sell you a policy. The reason for this is to make sure the surgery was successful, but also to make sure you are being responsible with your health after the surgery has been done.

Although you may still be skeptical, the chances are that your will be able to get life insurance. Regardless of your medical condition, it is important that you be completely honest and open about the specifics of your health as well as what steps you rare taking to keep yourself in the best health possible. If for any reason you are able to obtain a policy but have lied on the application, your beneficiary may be denied the claim after you have died.

Along with honesty, make sure you quote several insurance companies. Life insurance is very competitive and one aspect of getting an affordable policy is getting quotes from several carriers.

Add an annuity to your retirement-income mix

Use our strategies to lock in higher lifetime payouts.

By Kimberly Lankford, From Kiplinger’s Personal Finance

annuity in retirementA number of strategies can help you stretch your retirement savings over your lifetime. But when it comes to choices you control, only an annuity guarantees that your income—or a portion of your income—will continue no matter how long you live.

You can integrate an annuity into your retirement income strategy in a variety of ways (see Make Your Money Last). One popular method is to add up your regular expenses (such as housing, food, utilities, insurance premiums and out-of-pocket health care costs) and subtract any guaranteed sources of income (such as a pension and Social Security). Then buy an immediate annuity to provide enough income to fill in the gap. Once you know those costs are covered, you can invest the rest of your money more aggressively—providing extra funds to keep up with inflation, cover emergencies and other large outlays, or leave to your heirs.

The simplest way to provide lifetime income is with a single-premium immediate annuity: You hand over a lump sum to an insurance company when you retire, and it pays you a regular check for life (or for as long as you and a beneficiary live) starting right away. (With a deferred variable annuity with lifetime income benefits, another flavor of annuity usually sold to preretirees, you invest a chunk of money in mutual-fund-like accounts in exchange for a promise of a stream of income in the future.)

Immediate annuities may be simple, but they come with a couple of caveats: Because this type of annuity has fixed payouts that usually aren’t adjusted for inflation, and because you can’t reclaim the money once you commit it, you should invest only enough to help cover regular expenses and no more. More problematic are today’s low interest rates; now is not a good time to lock in a fixed payout for the rest of your life.

“Because of historically low interest rates, an investor who purchases an immediate annuity now may be solving an emotional dilemma—fear of market risk or fear of loss of income—at the expense of their financial best interest,” says Tim Maurer, a certified financial planner in Hunt Valley, Md. For example, if a 65-year-old man invests $100,000 in an immediate annuity now, he’ll receive about $6,900 per year for life—about $1,800 a year less than if a 65-year-old had bought the annuity five years ago. Low rates translate into lower payouts because the insurer earns less on its money.

You can combat lower payouts a couple of ways: by laddering annuities or by buying a relatively new product that guarantees heftier payments if you pick a date down the road to begin receiving them.

The annuity ladder

One way to avoid locking in too much money at low rates is to buy an immediate annuity now with a portion of your savings and invest more in annuities every few years. Payouts will be higher because you’ll be older; they’ll also increase if interest rates rise.

Michael Ritschel of Colorado Springs retired four years ago as a financial consultant. He receives a small pension and Social Security, but most of his retirement income comes from his own savings. Ritschel, who is 73, has 20% of his portfolio in fixed-income investments and 60% in dividend-paying stocks. He plans to put the rest of his savings in immediate annuities to cover living expenses for himself and his wife. He recently bought his first annuity and plans to make two more purchases over the next six years. “My goal is to have enough income to cover the necessities and to provide growth with income that will keep up with inflation,” he says.

The older you are when you buy an annuity, the higher the annual payouts—assuming interest rates don’t fall further. For example, a 73-year-old man who invests $100,000 in an immediate annuity now could get $8,820 per year for life; a 75-year-old could get $9,432 per year for life; and a 77-year-old could get $10,200 per year for life. If interest rates rise by the time the man purchases the annuities, the payouts will be even higher.

You’ll receive the highest payouts if you choose a life-only annuity, which stops paying when you die. (Ritschel chose that version because he already has a universal life insurance policy, with his wife as the beneficiary.) You’ll receive a lower annual payout if you buy an annuity that pays out as long as you or your spouse lives. If you’re worried that you might both die early, you can choose an option that guarantees payments (to you or your heirs) for at least ten years. A 70-year-old man who invests $100,000 in a single-life annuity could get $7,956 per year, or he could get $6,684 for payouts that continue as long as either he or his wife (also 70) lives. The income would be $6,588 per year if payouts continue as long as either spouse lives or for at least ten years.

Having the annuities to cover his retirement expenses allows Ritschel to feel comfortable investing his remaining savings more aggressively, because he won’t need to sell his investments in a down market to pay his bills.

Defer the income?

Annuities can protect against outliving your income, but you don’t really benefit from that protection early in retirement. For that reason, academics and actuaries have embraced products that delay payouts until much later—typically your seventies or eighties—when you’re most concerned about outliving your savings. “If you focus your longevity-risk thinking on those later years, it’s less expensive,” says Tom Terry, president-elect of the American Academy of Actuaries.

Continue to part 2

Add an annuity to your retirement-income mix (part 2)

Several years ago, a few insurers introduced “longevity insurance” annuities that paid out beginning when you turned 80 or 85. The payouts were high because many people didn’t live that long—and as a result received nothing. But few consumers were willing to take the risk of losing the money if they died before payouts began.

New York Life was among the first to revise the product to allow people to start receiving income much earlier. You may choose to defer the payments for from two to 40 years (although you may have to start taking payments by age 70½ if the money is in a retirement plan subject to required minimum distributions; see How Annuities Are Taxed). The longer you defer the payments, the higher the annual income. (You can usually change the date once before payouts begin.) In the meantime, you know the rest of your money needs to last only until the annuity payouts begin. These deferred-income annuities have become popular, with more than $1 billion in sales in 2012.

If a 65-year-old man invests $100,000 in New York Life’s Guaranteed Future Income Annuity and defers payments until age 70, he’ll receive $10,370 per year for life. If he defers payments until age 75, he’ll get $17,270 per year. Plus, unlike the earlier versions of longevity insurance, you may choose a cash refund option, which promises that you or your heirs will get back at least as much as you originally invested, even if you die early. But the annual payouts are much lower than they are with the version that stops payments as soon as you die—which can be a good option if you have life insurance or if your spouse isn’t dependent on the income. Choose the version with the refund option and you’ll get $8,800 per year starting at age 70 or $13,840 per year starting at age 75.

In 2003, Barbara and Wallace Tucker, both college administrators, bought a ranch overlooking a small lake in Wolfe City, Tex. They retired there in 2006, when they were both 62. They didn’t have pensions and wanted income to help pay their bills, but they didn’t know if they would return to work or make other big changes, so they didn’t want to tie up too much money in a life annuity. The Tuckers worked with Northwestern Mutual adviser Tom Weilert to convert their retirement savings into income.

Weilert advised them to take one-third of their retirement savings, which had been invested in stock funds, and shift it into a seven-year fixed annuity to help cover their expenses during the early years of retirement. With enough income to pay their bills, they didn’t have to sell stocks during the market downturn of 2008. The term on their fixed annuity is nearing an end, so they invested one-third of their remaining retirement savings in a deferred-income annuity from Northwestern Mutual that will provide guaranteed payouts later on.

Nine companies now offer deferred-income annuities, and at least another eight are planning to offer them in the next year or so, says Jafor Iqbal, associate managing director of retirement research for Limra, an insurance research and consulting firm. Fidelity has a marketplace for these annuities in which you can compare versions from four insurers: New York Life, MassMutual, Guardian and Principal.

Northwestern Mutual has a policy that also pays dividends, which the Tuckers bought. Each year, you can choose either to reinvest the dividends or to receive all or part of the dividends as additional payouts, for extra flexibility. Barbara returned to work in 2011 to set up a nursing program at the Texas A&M Commerce campus, so the Tuckers plan to defer the payouts for several years. Meanwhile, they’re reinvesting the dividends. “We’ll see what our needs are and whether we’ll be self-sufficient without the dividends,” says Barbara.

Where to shop

Compare prices for immediate annuities at www.immediateannuities.com, which provides payout quotes for many top annuity companies. A 70-year-old man who invests $100,000 in a single-life immediate annuity now can get annual payouts ranging from $7,140 to $8,148, depending on the company. Immediate annuities are generally structured the same, so you can usually pick the annuity with the most generous payout. But be sure to look at the insurer’s financial-strength rating, because you may need the payouts to continue for 20 or 30 years. ImmediateAnnuities.com provides three financial-strength ratings for each insurer from which you get quotes. Also look at the ratings in relation to other insurers that are offering similar payouts. You may want to go with an insurer that has a slightly lower payout if it has a much higher financial-strength rating.

What NOT to do in retirement

By Jennie L. Phipps · Bankrate.com
Monday, September 23, 2013There’s a piece that’s making the Facebook.com rounds about a former vice president for a major company who is 77 and just getting by working two jobs — one at Sam’s Club doing marketing demonstrations and another at a golf club, flipping burgers. The story is getting tons of social media traffic and sympathetic readers, but it makes me say “ouch.”

The story holds this man up as emblematic of today’s retirees. I think his situation — if true — is unfortunate, but had he made different — and better — decisions along the way, his current circumstances wouldn’t be so dire. Those of us who are younger have time to be smarter.

Below are some lessons to be learned from this story about “Tom.”

Save aggressively in tax-advantaged accounts. The story says that Tom had neither a 401(k) nor an IRA because he was self-employed. Self-employed people can and should have both of those kinds of accounts. Generous tax deductions mean that most self-employed people leave money on the table when they ignore those options.

Get good retirement planning advice. The story says that Tom at one point earned well over $100,000 a year, but he had saved only $90,000 by 2008. His saving were invested in stocks and were hard hit by the financial downturn, so he lost half his money. A good financial adviser before and during those tough times would have encouraged him to save more, diversify his investments, and stay the course, giving his investments time to recover.

Don’t take Social Security at 62. A man who worked all his life, including earning more than $100,000 some years, and met his legal obligations as a self-employed person to pay annually into Social Security, would be entitled to far more than the $1,200 a month that the story says he gets. Using the free AARP Social Security calculator and assuming that he was born in 1936, I worked backward and determined that he must have earned an inflation-adjusted average income of $35,000 a year and started taking his benefit at age 62. That meant he took a 25 percent haircut. For every year he had waited to claim benefits past age 62, he would have gained about 8 percent. By the time, he was age 70 and reached the maximum amount available, he would be receiving $2,136 or $25,632 a year. That’s not a princely amount, but combined with the $600 a month in pension benefits the story says this man gets, it would add up to nearly $33,000 a year, plus accumulated Social Security cost-of-living adjustments. At that income level, he  probably wouldn’t need two part-time jobs.

Be thoughtful about supporting your grown children. This story also says that this man sold his house in New Jersey for $182,000, bought a mobile home for $23,000, and divided the rest among his grown children, so they would have enough to buy their own homes. That is a generous gesture, but not if it means that they have to support you in your old age.

This retirement sob story appeared originally in a very reputable publication. I wish the editors there had questioned it. These kinds of pieces are widely read, but they make heroes out of people with poor judgment. That doesn’t help people trying to make good decisions.


Survey Americans upbeat about home prices

By Claes Bell • Bankrate.com

Once bitten, twice … bullish? Five years after a housing market crisis nearly sent the nation into a second Great Depression, Americans are feeling pretty great about the future prospects for the nation’s real estate.

In a national poll conducted as part of Bankrate’s monthly Financial Security Index, a majority said they expect the value of American homes to increase over the next 12 months. Fifty-five percent say home prices will go up, compared to just 9 percent who think they will fall and 27 percent who say they will stay flat.

Coming on the heels of Bankrate’s July FSI survey that showed real estate ahead of stocks as Americans’ preferred way to invest money they won’t need for 10 years, the new findings suggest that a horrific crash hasn’t done much to dim Americans’ enthusiasm for housing as an investment, says Greg McBride, CFA, senior financial analyst for Bankrate.com.

“It appears that Americans’ love affair with real estate is back,” McBride says. “Even though the housing bust shows that housing prices don’t just go straight up, people just don’t have the same risk aversion to real estate and homeownership that they do to stock ownership.”

Public probably right on rising prices

Given recent trends, it’s actually pretty realistic to expect home prices to continue rising over the next year, says Jeremy Edwards, a lead analyst at industry research firm IBISWorld.

“Data from the (Standard & Poor’s/Case-Shiller) home-price index have shown that housing prices have risen 7.1 percent in the last quarter, and we expect that trend to continue throughout 2013,” says Edwards.

If a substantial run-up in home values sounds disturbingly familiar, keep in mind that prices are still well below where they were in 2008, and — at least at this point — price increases look to be driven by economic fundamentals, says Edwards.

“Generally speaking we’ve seen improving economic conditions. We’ve had real (gross domestic product) revised up (to a growth rate of) 2.5 percent for the second quarter of 2013,” Edwards says. “Consumer confidence is rising and was up again in August by 0.5 points, and this is largely the result of improving short-term expectations from consumers, mostly to do with more upbeat business expectations and better job prospects.”

Foreclosure trends and Fed have helped

The fact that many banks have finally managed to clear out their inventory of foreclosed homes in many areas, as well as some help from the Federal Reserve in the form of low rates, also have helped values recover, says William Delwiche, an investment strategist for Robert W. Baird & Co.

“We got past that wave of the foreclosure crisis and banks trying to dump all their homes on the market,” Delwiche says. “Lower mortgage rates have had an undeniably positive effect on not just household balance sheets, but also the housing market generally. It makes it much easier to buy a house if you’re so inclined.”

In turn, a healthier housing market has beneficial effects for the entire economy, as rising home values tend to make consumers feel more confident about their overall financial situation and thus more likely to spend money on other things.

An uneven recovery

Thanks to the intrinsically localized nature of real estate markets, the recovery in housing values hasn’t benefited all areas equally, says Chris Leinberger, a professor at the George Washington University School of Business and chairman of the school’s Center for Real Estate and Urban Analysis.

Home values in areas that are high-density, urban and walkable have tended to rise faster than real estate in low-density, suburban areas where you have to drive, says Leinberger.

“Those two markets are going in two different directions, because we’ve overbuilt drivable suburban, which was the ultimate cause of the Great Recession, and of the mortgage meltdown,” Leinberger says. “Drivable suburban, particularly on the fringe, collapsed … while walkable urban went down a little bit but basically went flat, and that’s where most of the price appreciation in the future will be taking place.”

And while it may seem odd considering that many blamed the housing crisis on rampant overbuilding, a sharp decrease in homebuilding after the financial crisis has actually created a shortage of available homes in some areas, says Leinberger.

“There’s pent-up demand for walkable urban products for many, many years to come,” he says.

Not all is well in real estate

Despite the recent good news, the housing market has a long way to go before it receives a clean bill of health and stops being a drag on the economy in many areas, says Baird’s Delwiche.

“The percentage of people that are still underwater in their homes is still quite high,” Delwiche says. “You can step back and see that home values have increased over the past year pretty well, but you look at overall price levels and there they still haven’t recovered much of that big decline from the financial crisis.”

Where those values go over the long term depends a lot on supply and demand, says Albert Saiz, an associate professor at the Massachusetts Institute of Technology’s Center for Real Estate.

The supply of houses is now tight in some places, because homebuilding dropped off sharply after the economic crisis. How high prices rise will depend on how quickly homebuilders in those areas ramp up construction of the types of homes people want.

“There’s a huge lag now in construction, so it might take three or four years from the inception of a project … to the end,” he says.

The level of demand for homes will depend on factors such as: employment, which gives consumers the means to make mortgage payments; and interest rates, which affect their capacity to borrow. If rates rise too quickly, it could lower demand and put a damper on the growth of home prices, he says.

“It’s going to be a race now between interest rates and how fast the economy grows,” Saiz says.

Housing markets about to get squeezed

By AnnaMaria Andriotis – Fri, Sep 13, 2013

A plan to lower the cap on federally backed mortgages may hit home buyers particularly hard in several pockets of the country, new data shows.

The Federal Housing Finance Agency plans to reduce the maximum size of mortgages backed by Fannie Mae and Freddie Mac this January. The current limits are $417,000 in most parts of the country and up to $625,500 in more expensive markets. The agency hasn’t announced how much it will lower loan caps, but data compiled for MarketWatch by Lender Processing Services, a mortgage-data tracking firm, shows that a decline of just $25,000 from the current caps would impact hundreds of thousands of home buyers in middle-priced and upper-middle-priced housing markets — areas that are relatively upscale but far from the most expensive. “You are really talking about communities that are comfortably well-to-do; you’re not talking about communities with large numbers of hedge fund managers and the like,” says Robert Hockett, a professor of law at Cornell Law School with expertise in real estate finance.

In total, more than 214,000 of the agency-backed mortgages originated last year were within $25,000 of the current caps, according to LPS. For the first six months of this year, the number was just over 95,000. By one measure, they’re most in demand in Cook County, Ill., where 10,510 mortgages originated in 2012 and 4,137 during the first six months of this year were within $25,000 of current cap levels — the highest number in any county nationwide, according to LPS. In contrast, Manhattan, which has some of the most expensive real estate in the country, had just 1,187 and 460 of such large loans, respectively, for each time frame.

Nationally, these loans have accounted for less than 3% of all Fannie Mae and Freddie Mac mortgages given to borrowers during this time, though the share is much higher in some regions. In Colorado, North Carolina and South Carolina as well as in the District of Columbia, they account for more than 5% of agency mortgages that borrowers signed up for last year. They had over a 10% share in three Colorado counties, Boulder, Denver and Gunnison, during the first half of this year.

A greater number of borrowers could be impacted if mortgage caps drop by a larger amount. Housing experts say a $25,000 drop is likely conservative, and if the real cut is bigger, more borrowers will be left with fewer mortgage options going forward.

Fannie Mae and Freddie Mac mortgages weren’t always so generous. They were mostly capped at $417,000 until 2008, when legislation increased their loan limits in more expensive markets, and by late 2011 they settled at the levels currently still in place. The moves were meant to stimulate home buying and lending in the wake of the housing downturn. As private investors fled the mortgage market, Fannie Mae and Freddie Mac took their place and have since been buying most of the mortgages that lenders have been providing to borrowers. Higher caps on federally backed mortgages allowed more buyers, who might have otherwise been unable to buy a home, to qualify for those loans.

Now that the housing recovery is gaining steam, the government is trying to reduce its role in the mortgage market. A spokesperson for the FHFA says that the agency “shares the administration’s view that a gradual reduction in loan limits is an appropriate and effective approach to reducing taxpayers’ mortgage risk exposure, shrinking the footprint of Fannie Mae and Freddie Mac in the marketplace, and expanding the role of private capital in mortgage finance.”

But analysts caution that lowering their caps could have a domino effect on home sales. Many borrowers who use the maximum dollar amount of Fannie Mae and Freddie Mac loans tend to live in high-cost areas and rely on these mortgages to buy homes. If they’re unable to get financing, given that the private mortgage market is more selective, sales could stall and prices as a result may drop, says Jack McCabe, an independent housing analyst in Deerfield Beach, Fla. “This will be a real eye-opener,” he says.

In some areas, it would take just a small number of buyers to shake up home sales: In Cape May County, N.J., just 313 mortgages within $25,000 of the agency caps were given out during the first six months of the year, and they accounted for nearly 11% of all agency mortgages given in that time in the county. In Garrett County, Md., it was just 26 mortgages, which accounted for almost 8%.

The change would also come at an inopportune time for buyers: With home prices rising in many markets, experts say, it’s likely that a growing number of buyers will need larger-size mortgages.

To get a mortgage, most of these buyers will have to turn to private lenders, which include banks, credit unions, and independent mortgage lenders, who originate mortgages to borrowers on their own terms and either hold them on their books or sell them to a small number of private investors. But private lenders have been very selective over the past few years, lending mostly to affluent borrowers with large down payments who are buying multi-million-dollar homes. In many cases, these borrowers have the cash to buy their home outright.

It remains to be seen whether these lenders will open up to more borrowers. “If the private market doesn’t step in to take borrowers who are less than perfect, then those are the people who are going to be on the losing end of this,” says Georgette Chapman Phillips, professor of real estate at the University of Pennsylvania’s Wharton School.

6 Things to know about credit scores

FICO isn’t the only number in town. The score that counts is the one your lender uses.

By Jessica L. Anderson, August 2012 at kiplinger.com

1. There is no single number. The compilers of the widely accepted FICO credit score allow lenders to customize their system, so different lenders produce different scores. Plus, each of the credit bureaus—Experian, Equifax and TransUnion—has a proprietary scoring model. As if that weren’t enough, the credit bureaus together invented VantageScore a few years ago to compete with FICO.

2. Different scales, different scores. FICO scores range from 300 to 850. You’ll need about 760 or better for the best mortgage rates, but a score of 720 should be sufficient to get you the best deal on an auto loan. About 10% of lenders now use VantageScore, which ranges from 501 to 990 and has corresponding letter grades from A to F. The best rates go to borrowers with scores in the A range (above 900). If you are denied a loan or given less than the best rate, a lender must tell you the score it used, along with the corresponding range and factors that adversely affected your score.

3. Do a credit checkup. You can monitor your credit yourself by requesting a free report once a year from each of the credit bureaus through www.annualcreditreport.com. But the free report won’t include your credit score; you’ll pay about $8 to get the credit bureau’s proprietary number. The majority of lenders (especially mortgage lenders) use FICO scores, however, so if you’re in the market for a loan, that is the one you want. At www.myfico.com, you can get your credit report and a FICO score from Equifax or TransUnion (but not Experian) for $20.

4. Free doesn’t always mean free. If you are just looking for a ballpark estimate of how you’re doing, go to www.credit.com. You’ll get free estimates of your FICO score and VantageScore along with Experian’s own PLUS score. Sites such as www.freecreditscore.com and www.creditreport.com, however, will give you a free PLUS score, but only if you sign up for a free trial subscription to a credit-monitoring service; if you don’t cancel in seven days, the service costs $15 to $20 a month. Likewise, at MyFICO.com, you can get your FICO score free, but only if you accept a trial subscription to the com­pany’s Score Watch system.

5. Maintain credit health. All of the scores measure the same factors from the information in your credit file, and they all indicate the same thing: creditworthiness. Try to keep your credit-utilization ratio low—that is, be aware of the amount of debt you have compared with the amount of available credit you have. A history of paying your bills on time helps. Having a variety of loans—for example, a revolving line of credit (such as a credit card), a car payment and a mortgage—will boost your score, too.

6. It’s a moving target. The information in your credit files at the bureaus is continually changing—and so will your score. If you’re about to apply for a loan, check your reports for mistakes that could impact your score. Pay down balances as much as possible. And if you’re not applying for a credit card or making a big-ticket purchase anytime soon, says Jason Alderman, a senior director at Visa, “it doesn’t matter what your score is tomorrow.”

This article first appeared in Kiplinger’s Personal Finance magazine. For more help with your personal finances and investments, please subscribe to the magazine. It might be the best investment you ever make.

Buying a car? Do this first

8/28/2013 5:15 PM ET By Gerri Detweiler, Credit.com

An automobile is one of the biggest purchases you’ll make. Before you walk into the dealership, make sure your finances are in order.

buying_a_carJust a year and a half ago, I bought my first brand-new car.

Until then, I’d always bought used. But thanks to the recession, people were holding on to their cars longer and prices for used cars in good shape with low mileage had risen. As a result, buying new made more sense.

While I find auto shopping completely stressful, I am luckily married to someone who loves the hunt and doesn’t mind spending hours researching vehicles.

But I wasn’t about to let him loose without clear parameters.

So before I headed out to start my car-buying experience, I had a slew of options for my first step:

  • Calculate car payments for various loan amounts to figure out what I could afford;
  • Use Kelley Blue Book to estimate the value of my trade-in; or
  • Scour reviews on Edmunds.com and Consumer Reports to identify the best cars based on reliability and price.

Although I did all of those things, the very first thing I did was to check my credit scores to make sure there were no problems with my credit. I needed to finance my new car and I knew that getting a good interest rate would be just as important as negotiating a good deal on the vehicle I chose.

Whether you’re buying a new or used car, as long as you plan to finance it, you’ll want to make sure you don’t overlook this crucial step in the car-buying process. And I am not just saying that as a credit expert. Car-buying expert Phil Reed, who has bought at least one car every two months for most of the 12+ years he has worked at Edmunds.com, warned in a recent interview that prospective buyers who don’t take this extra step may pay far more for a car loan than they need to:

So what happens is they go directly to the dealership without checking their credit scores — which is not a good thing to do — and their attitude is “get me done.” In fact, that’s sort of a slogan that some car salespeople use; this (customer’s attitude) was just “get me done.” And that means that the borrower almost feels that the dealer is doing them a favor by giving them a loan. If they had taken time to check their credit, they might have found that they were in a stronger position. However, what happens is the dealership will go ahead and possibly offer them a loan that’s 2% to 5% higher than it could be… But even two percentage points on a $25,000 loan is going to mean nearly $1,000 to $2,000 more over the term of the loan.

The Consumer Financial Protection Bureau is also concerned that some buyers are steered into more expensive auto loans. It recently announced that it will be clamping down on potentially “unlawful discriminatory pricing” in auto loans. Its focus is “dealer markups” — where dealers charge more than the rate the lender is offering in order to make more money — which they say can add significantly to the cost of a loan.

Why does the dealer’s score look different?

If you do check your credit scores before you start shopping for auto financing, you will probably find that the number the dealer or financial institution sees is different than the number you see. That doesn’t mean your free credit score is wrong. It’s different because there are many credit scores out there, and the credit scores used by the auto industry are usually customized to help them predict how likely the borrower is to pay that type of loan on time.

So when you do check your credit scores, be sure to focus on where you fall in comparison to other consumers, and what areas of your credit are strong — and what might need some work. For example, if you get your free Credit Report Card from Credit.com and earn an “A” in all the factors that make up your credit score, you know you should likely be getting a great rate on your auto loan. But even if some areas rate a “B” or “C” you may still be able to snag a good deal.

Once you know where your credit stands, you can shop for an auto loan before you set foot in a dealership. When you find the car or truck you have to buy, you can take the financing you have already lined up, or let the dealer make you a better offer. Either way you can enjoy your new vehicle knowing that, at least as far as financing goes, you got the best deal possible.